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Using IT To Prevent Fraud

Forensic accountant Harvey Kelley says the IT department can help detect, prevent, and uncover financial fraud.

Harvey Kelly is the last person you want to see in your doorway.

The forensic accountant and partner in PriceWaterhouseCoopers corporate investigations group digs through a company's dirty laundry looking for evidence of accounting fraud.

But Kelly also can offer words of wisdom about detecting, preventing, and uncovering financial fraud, particularly for the IT department.

There have been instances in which technology managers and operators have been implicated in actively assisting in an act of fraud. For example, in one case, the IT workers re-coded financial reporting software to prevent the date from changing for three days after the close of the reporting period, allowing incoming revenue to be booked on the previous quarter. "Clearly, accountants would have a problem achieving that without assistance from the IT department," says Kelly.

But many times IT can unknowingly facilitate fraud, he says. First, complex computer systems that are confusing to users create an opportunity for fraudulent activities by the few who understand how to use the system. "It's common that IT people have unwittingly helped the accounting folks perpetrate a fraud either by designing processes that allow someone to conceal it in the system or facilitate them doing it because there's a computer system involved in maneuvering the fraud," says Kelly.

That type of sinister activity is detectable, though. "People who are perpetrating a fraud and concealing it through confusing computer systems are often heavily resistant to upgrading computer systems," says Kelly. Particularly in the accounting unit, where users should be eager to get more sophisticated tools, he says.

Kelly also advises those who oversee financial applications to watch for behavior indicative of fraud, such as breaking up a large sum of money and moving it into multiple accounts or reversing audit-book entries after the financial report has been released by the auditors. "People greatly altering their behavior around reporting periods, those are the things the IT officer might detect as something that looks unusual," says Kelly.

But just as IT can help the bad guys, it can help the good guys, too. "In virtually every investigation, we work intricately with the IT people to gain access to the accounting system itself, and we get a lot of assistance in extracting information for report writing, restoring old files, and the like," says Kelly. He adds that the IT department often helps with fraud investigations by restoring E-mail, operational documents, and shipping records. And perhaps most important, the technologists are key players in sifting through data and identifying culprits, down to the individual who punched the numbers into the keypad on an accounting application.

The good news is that it's uncommon for Kelly to implicate the IT department in an act of accounting fraud. "If anything, they're accomplices, they're not the ones primarily responsible for it," he says. So if he does show up in your doorway, you might want to help him out.

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